Preliminary Results

RNS Number : 4407D

Soco International PLC

23 March 2011

 



23 March 2011

SOCO International plc

("SOCO" or the "Company")

PRELIMINARY RESULTS

SOCO, an international oil and gas exploration and production company, today announces its preliminary results for the year ended 31 December 2010.

HIGHLIGHTS

Financial Highlights

·     After tax profit $101.4m (2009: $51.1m)

·     Balance sheet further strengthened by disposal of Thailand assets for gain of $80.1m

·     Cash and liquid investments remain robust at $260.4m, operational programme fully funded

Operational Highlights

·    TGT development on track to come on stream mid-2011 with Phase I production plateau expected  to be 55,000 BOPD

·    Significant development drilling progress on TGT, particularly the extension of the previously defined eastwards limits of the field

·    Preparations underway for further exploration drilling on our Africa licences

Outlook

·     Exponential increase in net corporate production and cash flow in five months

·     Exploration drilling programme in offshore Congo offers substantial upside

·     New ventures near finalisation in SE Asia and Africa

Ed Story, President and Chief Executive Officer of SOCO, commented:

"We are on schedule for First Oil from the TGT field in Vietnam having undertaken the largest development project in the Company's history.  At the same time we have shown our ability to conduct and fund extensive exploration opportunities.

"In a matter of a few months, the dramatic financial impact of our previous investments in Vietnam will be clearly visible. Moreover, we envision other opportunities to enter into additional high impact exploration efforts in Vietnam."

ENQUIRIES:

SOCO International plc

Roger Cagle, Deputy Chief Executive and Chief Financial Officer

Tel: [phone]

Pelham Bell Pottinger

James Henderson

Victoria Geoghegan

Tel: [phone]

NOTES TO EDITORS

The Company will present the results to institutional analysts today at 9.30am at the offices of J.P. Morgan Cazenove.

SOCO is an international oil and gas exploration and production company, headquartered in London, traded on the London Stock Exchange and a constituent of the FTSE 250 Index. The Company has interests in Vietnam, the Republic of Congo (Brazzaville), the Democratic Republic of Congo (Kinshasa) and Angola, with production operations in Vietnam.

SOCO's Block 16-1 and Block 9-2 projects in Vietnam are located offshore in the oil rich Cuu Long Basin, which is a shallow water, near shore area. SOCO holds its interests in Vietnam through its 80% owned subsidiary SOCO Vietnam Ltd (SOCO Vietnam) and through its 100% ownership of OPECO Inc. SOCO Vietnam holds a 25% working interest in Block 9-2, which is operated by the Hoan Vu Joint Operating Company and holds a 28.5% working interest in Block 16-1, which is operated by the Hoang Long Joint Operating Company. OPECO Inc. holds a 2% interest in Block 16-1.

SOCO holds its interests in the Republic of Congo (Brazzaville), all offshore in the shallow water Lower Congo Basin, through its 85% owned subsidiary, SOCO Exploration and Production Congo SA (SOCO EPC). SOCO EPC holds a 29% interest in the Marine XI Block and a 29.4% interest in the Marine XIV Block and is designated operator of the two Blocks.

SOCO holds its interests in the Democratic Republic of Congo (Kinshasa), all onshore, though its 85% owned subsidiary, SOCO Exploration and Production DRC Sprl (SOCO E&P DRC). SOCO E&P DRC holds a 65% working interest in the Nganzi Block, situated 50 kilometres from the west coast, and a 38.25% participating interest in Block V, situated in the southern Albertine Graben in eastern DRC. SOCO E&P DRC is designated operator of both Blocks.

SOCO holds its interests in the Angolan enclave of Cabinda through its 80% owned subsidiary, SOCO Cabinda Limited, which holds a 17% participating interest in the Production Sharing Agreement for the Cabinda Onshore North Block.

CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT

2010 was a year that clearly illustrated the importance of effective risk management in any exploration led business model. Despite the fact that we had historically enjoyed an exploration success ratio upwards of 50% and despite the fact that we had a drilling programme focused on what appeared to be a very low risk appraisal well in the Te Giac Den (TGD) area in Vietnam and exploration targets in a highly coveted new basin onshore in the Democratic Republic of Congo (Kinshasa), we did not add new reserves during the year. However, the actual underlying value of the portfolio continued to be strengthened. We continued to position for a robust future: consolidating a strong financial position, progressing a major construction project towards first oil and ensuring the continuation of an active, high potential exploration campaign.   

Financial and Operating Results

After tax profit for the year, $101.4 million, almost doubled that of 2009 ($51.1 million) largely on the back of the disposal of the Group's Thailand asset (gain of $80.1 million). However, resultant after tax profit from continuing operations, the Ca Ngu Vang field (CNV) offshore Vietnam, fell to $12.3 million (2009 - $34.8 million) primarily due to the fact that entitlement barrels associated with the Group's cost carry of Petrovietnam on the 9-2 Block had been fully recouped by the end of 2009. Production was also reduced due to being offline as the result of a pipeline inspection gauge becoming stuck in the production line connecting the CNV platform to the Bach Ho platform and for a brief, planned shut-in during the third quarter for pressure surveying.

Total production net to the Company's working interest averaged 2,257 barrels of oil equivalent per day (BOEPD) from continuing operations, down from 2,848 BOEPD in 2009.  Up to the September date of sale, production from Bualuang (Thailand) in 2010 averaged 3,331 barrels of oil per day (BOPD) net to SOCO's working interest (2009 - 3,567 BOPD).

Total cash flows from operations were $36.7 million (2009 - $77.0 million). Exploration activity in South East Asia and Africa and the Te Giac Trang (TGT) development in Vietnam more than doubled the total capital spend from $73.9 million in 2009 to $151.8 million in 2010. A May repayment of convertible bonds in the amount of $165.9 million was offset by the proceeds of a January share placing of $163.7 million. The Group's year end 2010 cash, cash equivalent and liquid investments position remained robust at $260.4 million.

Due to the continuing need to finance current and future exploration, appraisal and development projects, the Board of Directors are not recommending the payment of a dividend.

2010 Operations Review

South East Asia

Vietnam - Block 16-1

The Group's largest development project in its history is scheduled to come onstream in the third quarter of 2011 with peak production from this first phase of development expected to be approximately 55,000 BOPD. During 2010, following the successful installation of the platform jacket in the northern area of the field, three development wells were drilled and four were in progress over year end. Although all of the development wells are important in that they add valuable data for the interpretation of field characteristics such as continuity of oil column, the TGT-2P well was particularly important as it extended the previously defined eastward limits of the field. All development wells will be suspended to become producing wells upon start-up of production.

The four wells in progress over year end were completed in the first quarter of 2011. All wells to date have come in at or better than pre-drill prognosis adding to the confidence in field resources. An eighth development well was commenced at the end of February 2011 and will be completed prior to the drilling rig being removed from the platform jacket to accommodate installation of the topsides prior to hooking up the wells and initiating production.   

The TGD-2X well, our third well bore penetration on the TGD appraisal area, encountered significant hydrocarbons confirming the structure has significant amounts of oil in place.  However, uncertainty remains over whether it can be commercially exploited as subsequent testing revealed that the gas content, encountered by the earlier TGD-1X and TGD-1X-ST1 wells on the crest of the structure, was lacking on the oil leg encountered by the TGD-2X well on the flank, and thus the reservoir energy was insufficient to generate acceptable commercial flow rates. Although the initial application for an extension of the appraisal licence was not supported by the Ministry of Trade and Industry, we believe the scale of potential opportunity merits continued evaluation and consequently the Joint Operating Company (JOC) has reapplied to extend the exploration licence beyond its December 2010 expiry.  

Vietnam - Block 9-2

Production on the CNV field was suspended during the first month of the year due to a pipeline inspection gauge becoming stuck in the production line that connects the CNV platform to the Bach Ho production platform, but resumed in February 2010. In April 2010, Phase II of the CNV Development Drilling Programme began with the drilling of the CNV-6P-ST1 well. This well was converted to a water injector well to provide early water flooding, which would enable plateau production to be reached and avoid gas breakthrough. Indications are that the reservoir has reacted well to the pressure maintenance. Production in 2010 from the CNV field averaged 2,257 BOEPD (2009 - 2,848 BOEPD) net to SOCO's working interest.

From the results of the first Phase II CNV development well, SOCO's technical team believe that further development drilling is required to fully exploit the field resources. The Hoan Vu JOC, operator of the field, is expected to hold technical meetings during 2011 to consider further drilling on CNV.

Africa

Republic of Congo (Brazzaville)

From analysis following the results from the 2009 appraisal drilling on the Viodo field on Marine XI, it was determined that the field should qualify for marginal field designation from the Government. An application has been submitted and the partners are awaiting the determination before deciding how to proceed with the development of the field.

After receiving an extension of the production sharing agreements for both Blocks Marine XI and Marine XIV, partners plan to drill an exploration well on each during the third quarter of 2011. A rig contract was signed in the first quarter of 2011.

Democratic Republic of Congo (Kinshasa) (DRC)

In July 2010, SOCO Exploration and Production DRC Sprl became the first company in over 40 years to drill onshore in the DRC and the first on the Nganzi Block. SOCO E&P DRC, in partnership with farminee INPEX CORPORATION, drilled three exploration wells all of which encountered oil and gas shows, reservoir sands and source rocks. Although these did not result in a commercial discovery, the information gathered will allow us to refine our interpretation and better understand the prospectivity of this high potential Block.

In June 2010, the Production Sharing Agreement for Block V in eastern DRC received the Presidential Decree, the final step in the award of the block concession. SOCO has a 38.25% working interest and is the designated operator. There is an initial five year exploration period on Block V. The environmental assessment report was submitted to the government in March 2011 and is awaiting an official response.

Angola

A seismic acquisition programme that began in late 2009 on the onshore Cabinda North Block was suspended in January 2010 by the operator due to multiple security incidents in the region. The acquisition programme recommenced in May 2010 and is expected to continue into the third quarter of 2011. No drilling is anticipated in Cabinda during 2011.

Corporate

Shares

In January 2010, the Company successfully placed 28,937,388 new ordinary shares at a price of £3.525 (stated post share subdivision, see below) to raise gross proceeds of £102.0 million ($166.0 million). The proceeds of the placing further bolstered the Group's balance sheet ahead of a period of significant expenditure on the TGT development, a partial put option exercise by convertible bondholders in May 2010 and exploration in Africa.

In June, the Company's share capital was subdivided on a four for one basis, wherein every existing ordinary share of £0.20 each was subdivided into four ordinary shares of £0.05 each. Accordingly, this subdivision was reflected in the share price, which closed at £16.10 on 9 June 2010 and £3.98 on 10 June 2010. 

Bond Redemption

During 2010 the Group eliminated uncertainty over its convertible bonds when 66% of bond holders exercised the one time put option in May. The remaining bonds mature in May 2013.

The Board

Mr Peter Kingston and Mr Martin Roberts have officially notified the Board that they will retire at the upcoming Annual General Meeting from their roles as Non-Executive Directors. Peter, who was appointed in 1997, was instrumental in the formation and listing of SOCO, initially as the Non-Executive Chairman and subsequently as the Non-Executive Deputy Chairman and Senior Independent Director. Martin joined the Board as a Non-Executive Director in 2004. Both have been valuable contributors to the Board and its Committees. 

Outlook

In 2011 we look forward to commencing the first phase of production operations from the Group's TGT field offshore Vietnam, where the Phase I production plateau is anticipated at 55,000 BOPD. In Africa we will continue our exploration activity with further evaluation of drilling results from the onshore Nganzi wells drilled in 2010 and early 2011 and further drilling on our blocks offshore Congo (Brazzaville). Exploration activity is also expected to commence on our new licence in eastern DRC.

Our business model is about progressive sustainability as we aim to refresh our asset portfolio by replacing disposals with potentially high impact new projects. By its very nature exploration is a high risk and long term endeavour but with potentially high rewards. The key is having a portfolio of opportunities across the risk spectrum and mitigating the downside via various risk mitigation techniques.

The initiation of production at TGT this year assures us that the Company will have the capacity for an abundance of attractive opportunities to create significant value for shareholders.

Rui de Sousa

Chairman

Ed Story

President and Chief Executive Officer

REVIEW OF OPERATIONS

The Company continued on schedule, achieving fabrication and installation targets, to bring the largest development project in its history on stream mid-year of 2011. SOCO also continued the most active drilling programme in its history throughout 2010 with development and appraisal drilling in Vietnam and exploration drilling in the Democratic Republic of Congo (Kinshasa) (DRC).

Development drilling on the Te Giac Trang (TGT) field offshore Vietnam progressed the project towards first oil which remains targeted for August 2011. Gross production from this first phase of development is expected to be approximately 55,000 barrels of oil per day (BOPD). All seven of the development wells drilled to date have come in on or better than pre-drill prognosis.

Although the initial drilling programme onshore in the DRC did not result in any commercial discoveries, drilling results did provide significant encouragement. Oil and gas shows, reservoir sands and source rocks were encountered by the inaugural wells in the first onshore drilling campaign to be carried out in the DRC in over 40 years. The information gathered allows us to refine our interpretation and better understand the prospectivity of the high potential Nganzi Block.

Total production net to the Group's working interest during 2010 was 4,648 barrels of oil equivalent per day (BOEPD) sourced from its Vietnam and Thailand operations (up until the date of sale) compared with 6,415 BOEPD produced from these same assets in 2009.

SOUTH EAST ASIA

Vietnam

SOCO's Block 16-1 and Block 9-2 projects in Vietnam are located offshore in the oil rich Cuu Long Basin, which is a shallow water, near shore area defined by several high profile producing oil fields, the largest of which, Bach Ho, is located between the two Blocks and has produced more than one billion barrels of oil to date. The projects are operated through non-profit Joint Operating Companies (JOCs) wherein each participating party owns shares equivalent to its respective interests in the Petroleum Contracts governing the projects.

The Group's interests are held through its 80% owned subsidiary SOCO Vietnam Ltd and through its 100% ownership of OPECO, Inc. SOCO Vietnam Ltd holds a 25% working interest in Block 9-2, which is operated by the Hoan Vu JOC (HVJOC) and a 28.5% working interest in Block 16-1, which is operated by the Hoang Long JOC (HLJOC). OPECO, Inc. holds a 2% working interest in Block 16-1. SOCO's partners on both Blocks are Petrovietnam, the national oil company of Vietnam, and PTTEP, the national oil company of Thailand.

Development

Te Giac Trang (TGT) Field, Block 16-1

The TGT field extends over 15 kilometres along the north-eastern part of Block 16-1, west of Block 9-2, offshore Vietnam. First oil is targeted for mid-2011 with production from this first phase of development expected to be approximately 55,000 BOPD. 

Following the successful installation of the platform jacket in the northern area of the field, the first two development wells on the TGT development were completed in October. Preliminary log analysis of the first well, the TGT-H1-1P, drilled to essentially twin one of the original discovery wells, indicated that the well encountered the top of the target reservoir horizon on prognosis. The second well, the TGT-H1-2P, encountered the reservoir section approximately 10 metres higher in the section than the pre-drill prognosis which strongly supports the favourable structural reservoir analysis following the reprocessed pre stack depth migrated seismic that the TGT field extends to the east.

The third development well, the TGT-H1-3P drilled to the north west of the field, was completed in December 2010. Preliminary log analysis indicated that the well encountered the top of the target reservoir horizon as expected, based on the reprocessed pre stack depth migrated seismic.

Four further development wells were "batch" drilled. The initial interpretation of the results of these wells has supported the use of the pre-stack depth migrated seismic interpretation. The petrophysical analysis has also enabled refinement to the geologic model and the distribution of porosity and oil saturation across the northern area of the field. This work will enable better well placement for improving recovery once the field starts production. An eighth development well was commenced at the end of February 2011. All development wells will be suspended to become producing wells upon start-up of production in 2011.

Production from the TGT field will be delivered into a Floating Production Storage and Offloading unit (FPSO). Work on the conversion of the FPSO by BAB-VSP, a joint venture between BAB Armada and Vietsovpetro, has commenced at Keppell's shipyard in Singapore. During the year, all the necessary preparation work was completed and the installation of the production process modules commenced. The work on the vessel remains on target for a sail-away date from the yard in July 2011 to meet the production start up target.

Appraisal

Te Giac Den (TGD) Appraisal Area, Block 16-1

The TGD Appraisal Area encompasses 150 square kilometres and includes the high pressure, high temperature discovery well, TGD-1X-ST1, on Prospect "E" and the analogous "E" South Prospect. This area borders the southern boundary of the TGT Field.

In June 2010, drilling operations began on the TGD-2X appraisal well, targeting reserves in the supravolcanics interval that had been briefly tested by the TGD-1X-ST1 discovery well in 2008. Drilled on a sole risk basis, the appraisal well was drilled to demonstrate commerciality of the initial discovery.

The appraisal well reached a Total Depth of 4,669 metres at the end of August 2010 after penetrating the target hydrocarbon zone in the Oligocene "E" formation. The well encountered significant hydrocarbons in a clastics reservoir sequence at approximately 4,550 metres Measured Depth and produced both black oil and gas. Subsequent testing, however, revealed that the gas content that had been encountered by the earlier TGD-1X and TGD-1X-ST1 wells on the crest of the structure was lacking on the oil leg encountered by the TGD-2X well on the flank, and thus the reservoir energy was insufficient to generate acceptable commercial flow rates. The well was plugged and abandoned.  

To allow an appropriate evaluation of the TGD drilling results to date and an opportunity to acquire further seismic over the appraisal area, the HLJOC has applied to extend the exploration licence beyond its December 2010 expiry. Whilst the Company has been informed that the Ministry of Trade and Industry in Vietnam was not supportive of the initial application, the HLJOC is continuing to pursue the extension with the case that the HLJOC's level of geological knowledge of the appraisal effort offers the most expedient route to unlocking this vast potential resource and thus, provides the most immediate benefit to Vietnam.

Production

Ca Ngu Vang (CNV) Field, Block 9-2

The CNV field is located in the western part of Block 9-2, offshore Vietnam. First oil commenced in 2008 and the field is currently producing at approximately 11,250 BOEPD, comprising approximately 7,825 BOPD and 20 million standard cubic feet of gas and gas liquids per day.

Production resumed in early February 2010 after a two month suspension due to a pipeline inspection gauge becoming stuck in the production line that connects the CNV platform to the Bach Ho CPP-3 production platform. In April 2010, Phase II of the CNV Development Drilling Programme began with the drilling of the CNV-6P-ST1 well, a side-track of the CNV-6P well and targeting the western side of the field. This well was converted to a water injector well to provide early water flooding, which would enable plateau production to be reached and avoid gas breakthrough. Indications are that the reservoir has reacted well to the pressure maintenance.

The field had a brief, planned shut-in during the third quarter for reservoir pressure surveying. Based on the survey, the consortium is considering drilling an additional producing well, which would eventually be converted to a water injector. The well is tentatively scheduled to be drilled in the second half of 2011.

Thailand

Bualuang Field

In September 2010, the Company completed the disposal of its wholly owned subsidiary SOCO Thailand LLC, the entity that held the Group's 40% interest in the Bualuang field located in Block B8/38, offshore in the Gulf of Thailand for gross proceeds of $105 million.

AFRICA

Congo (Brazzaville)

SOCO holds a 29% interest in the Marine XI Block and a 29.4% interest in the Marine XIV Block. Marine XI is located adjacent to the coast in the Lower Congo Basin, offshore Congo (Brazzaville), in shallow waters with depths ranging up to 110 metres and covering approximately 1,400 square kilometres. Marine XIV is located also in shallow waters adjacent to Marine XI.

Appraisal Analysis

Viodo Field, Marine XI 

From analysis following the results from the 2009 appraisal drilling on the Viodo field on Marine XI, it was determined that the field should qualify for marginal field designation from the Government. An application has been submitted and the partners are awaiting the determination before deciding how to proceed with the development of the field.

After receiving an extension of the Production Sharing Agreement (PSA) for the Block, a contract was agreed with Pride International to drill an exploration well on the Block during the third quarter of 2011.

Marine XIV

During 2010, the partners reprocessed the seismic data from the 100 kilometre multi-azimuthal 3D seismic programme completed over Marine XIV the previous year. An application was made and official notice received from the Oil Minister of a one year extension of Phase I of the PSA for this Block. An exploration well is planned for the third quarter of 2011.

Democratic Republic Of Congo (Kinshasa) (DRC)

SOCO holds its interests in DRC, all onshore, through its 85% owned subsidiary, SOCO Exploration and Production DRC Sprl (SOCO E&P DRC).

Farm-Out Agreement

In July 2010, SOCO E&P DRC entered into a farm-out agreement wherein it agreed to farm-out a 20% interest in the Nganzi Block to INPEX CORPORATION (INPEX). INPEX is a current oil producer in another area of the DRC holding a 32.28% interest in various offshore producing fields and facilities and is one of SOCO's co-venturers in Angola. The remaining 15% interest is held by the national oil company, La Congolaise des Hydrocarbures (Cohydro).

Per the agreement, INPEX funds 40% of the cost, with half of the funding obligation subject to certain caps on cost overruns, associated with a three well exploration drilling programme. Following the initial three well programme, INPEX will fund its participating interest share of costs associated with the Block. In addition, INPEX will fund its participating interest share of the cost recoverable historical costs incurred by SOCO E&P DRC on the Nganzi Block. The assignment of interest was approved by the appropriate regulatory authorities of the Government of the DRC.

Exploration

Nganzi Block

The Nganzi Block is situated some 50 kilometres from the west coast and is approximately 60 kilometres from an export facility located offshore in DRC waters. Following the farm-out agreement, SOCO E&P DRC holds a 65% working interest in the Block and is the designated operator.

In July 2010, SOCO E&P DRC became the first company in over 40 years to drill onshore the DRC and the first on the Nganzi Block. SOCO E&P DRC drilled three exploration wells all of which encountered oil and gas shows, reservoir sands and source rocks. Although these have not resulted in a commercial discovery to date, the information gathered allows us to refine our interpretation and better understand the prospectivity of this high potential Block.

Nganga Prospect, Nganzi Block

The first exploration well on the Nganzi Block was spudded on 15 July 2010 on the Nganga Prospect, previously designated as Prospect "B". The well was drilled to 2,175 metres Measured Depth reaching the Basement as prognosed. The well encountered approximately 500 metres of source rock with significant hydrocarbon shows and approximately 245 metres of good quality porous sand with an average porosity of ca. 17.5% in the primary target. However, petrophysical interpretation of the logs acquired across the reservoir interval indicated that the sands were water bearing. The predicted lateral seal for the reservoir horizon was not present because of the change in the basin margin adjacent to the well location, which can now be seen to have provided a local sediment entry point for sands. The Nganga-1 well was plugged and abandoned and the rig was moved to the Kinganga Nyanya Prospect, previously designated as Prospect "D".

Kinganga Nyanya Prospect, Nganzi Block

The Kinganga Nyanya 1 (KNY-1) exploration well spudded on 1 October 2010 and was drilled to 1,164 metres Measured Depth. The well drilled good source rock shales in the Middle and Lower Bucomazi, interbedded with Lower Bucomazi sands. It also encountered the target Lucula formation sands although these were not hydrocarbon bearing. There were oil shows in the Lower Bucomazi and the Chela formations. Log analysis indicated oil pay in the secondary target Chela formation sands. Although the well bore was not ideally situated to encounter the thickest part of the Chela sands, an abbreviated test was carried out to determine the reservoir characteristic. On test the sands were found to be tight. The data will be incorporated into the area evaluation to determine if there is a possibility of a commercial accumulation of hydrocarbons up-dip of the KNY-1 well.

Bayingu Prospect, Nganzi Block

The wildcat exploration well, Bayingu-1 (BYU-1), spudded in December 2010 on the prospect previously designated as Prospect "H", located in the southern portion of the Nganzi Block. The well encountered oil and gas shows in both the primary and secondary reservoir targets.

The reservoir sands at the primary Lower Bucomazi target, however, were poorly developed, whilst the residual nature of the oil shows in the secondary Chela formation indicates lack of closure at this location. The well was plugged and abandoned in January 2011.

Exploration

Block V

SOCO E&P DRC holds a 38.25% participating interest in and is operator of a Production Sharing Agreement for Block V located in the southern Albertine Graben in eastern DRC, adjacent to the border with Uganda where there have been recent discoveries in the same basin. The Block covers an area of 7,105 square kilometres and includes part of the Virunga National Park, including part of Lake Edward, but specifically excludes any habitat of the Mountain Gorilla. 

In June 2010, the Production Sharing Agreement for Block V received the Presidential Decree, the final step in the concession award of the Block. The Block V partnership consists of SOCO E&P DRC holding 38.25%, Dominion Petroleum Congo SPRL with 46.75% and Cohydro, the DRC state oil company with 15%. During the initial five year exploration period, the Block V partnership have committed to acquire 300 km of seismic data and drill two exploration wells, pending governmental approval to proceed with each phase of activity. If approved, a Phase I seismic study comprising compressed air will be conducted over part of Lake Edward.

As is always the case in the areas where the Company plans operations, a base line environmental impact assessment (EIA) has been carried out. A social impact assessment will be submitted for governmental approval prior to the commencement of activity. A security assessment is additionally underway. The EIA was submitted to the government in March 2011 and is awaiting an official response. No exploration will commence without the permission of the government of DRC. 

Angola

Exploration

Cabinda Onshore North Block

SOCO Cabinda Limited, the Company's 80% owned subsidiary, holds a 17% participating interest in the Production Sharing Agreement for the Cabinda Onshore North Block in the Angolan enclave of Cabinda. The Block, which is operated by Sonangol, covers 1,400 square kilometres and is bordered in the north by Congo (Brazzaville) and in the south and east by the DRC.

A seismic acquisition programme that began in late 2009 was suspended in January 2010 by the operator due to multiple security incidents in the region. The acquisition programme recommenced in May 2010 and is expected to continue throughout much of this year. No drilling is anticipated in Cabinda during 2011.

Consolidated Income Statement           

for the year to 31 December 2010            

							2010		2009
			Notes				$000's		$000's
Continuing operations
Revenue			3				48,390		69,339
Cost of sales							(12,395)		(10,914)
Gross profit							35,995		58,425
Administrative expenses							(6,858)		(6,785)
Operating profit							29,137		51,640
Investment revenue							1,301		2,554
Other gains and losses							938		1,694
Finance costs							(525)		(1,160)
Profit before tax			3				30,851		54,728
Tax			3, 4				(18,548)		(19,915)
Profit for the year from continuing operations							12,303		34,813
Discontinued operations			5
Operating profit from discontinued operations							36,473		38,811
Other gains and losses on discontinued operations							1,067		21
Finance costs from discontinued operations							(53)		(66)
Profit on disposal							80,116		-
Profit before tax from discontinued operations			3				117,603		38,766
Tax			3, 4				(28,474)		(22,461)
Profit for the year from discontinued operations							89,129		16,305
Profit for the year							101,432		51,118
Earnings per share (cents)			6
From continuing operations							3.8		11.8
From discontinued operations excluding profit on disposal							2.7		5.5
From profit on disposal							24.4		-
Basic							30.9		17.3
From continuing operations							3.5		10.6
From discontinued operations excluding profit on disposal							2.5		4.8
From profit on disposal							22.4		-
Diluted							28.4		15.4

Statements of Comprehensive Income          

for the year to 31 December 2010            

					Group				Company
			2010		2009		2010		2009
			$000's		$000's		$000's		$000's
Profit (loss) for the year			101,432		51,118		(5,878)		6,887
Transfer from other reserves			11,539		4,209		-		-
Unrealised currency translation differences			(5,538)		98		(21,686)		55,219
Total comprehensive income (loss) for the year			107,433		55,425		(27,564)		62,106

Balance Sheets         

as at 31 December 2010        

					Group				Company
			2010		2009		2010		2009
			$000's		$000's		$000's		$000's
Non-current assets
Intangible assets			144,256		103,462		-		-
Property, plant and equipment			692,979		572,735		116		162
Investments			-		-		532,460		512,031
Financial asset			37,448		36,247		-		-
			874,683		712,444		532,576		512,193
Current assets
Inventories			16,405		23,834		-		-
Trade and other receivables			24,377		19,946		503		542
Tax receivables			334		270		134		132
Liquid investments			-		151,954		-		-
Cash and cash equivalents			260,438		155,619		114,362		240
			301,554		351,623		114,999		914
Total assets			1,176,237		1,064,067		647,575		513,107
Current liabilities
Trade and other payables			(45,871)		(23,721)		(1,295)		(2,657)
Tax payables			(2,013)		(10,686)		(94)		(367)
Convertible bonds			-		(232,674)		-		-
			(47,884)		(267,081)		(1,389)		(3,024)
Net current assets (liabilities)			253,670		84,542		113,610		(2,110)
Non-current liabilities
Convertible bonds			(77,968)		-		-		-
Deferred tax liabilities			(24,073)		(22,821)		-		-
Long term provisions			(13,095)		(10,897)		-		-
			(115,136)		(33,718)		-		-
Total liabilities			(163,020)		(300,799)		(1,389)		(3,024)
Net assets			1,013,217		763,268		646,186		510,083
Equity
Share capital			27,534		24,451		27,534		24,451
Share premium account			72,622		71,077		72,622		71,077
Other reserves			149,205		11,317		100,592		(58,447)
Retained earnings			763,856		656,423		445,438		473,002
Total equity			1,013,217		763,268		646,186		510,083

Statements of Changes in Equity         

for the year to 31 December 2010           

					Group
	Called up share capital	Share premium account	Other reserves	Retained earnings	Total
	$000's	$000's	$000's	$000's	$000's
As at 1 January 2009	24,322	70,369	14,697	600,998	710,386
New shares issued	129	708	-	-	837
Share-based payments	-	-	875	-	875
Transfer relating to share-based payments	-	-	(740)	740	-
Transfer relating to convertible bonds	-	-	(3,469)	3,469	-
Unrealised currency translation differences	-	-	(46)	98	52
Retained profit for the year	-	-	-	51,118	51,118
As at 1 January 2010	24,451	71,077	11,317	656,423	763,268
New shares issued	3,083	1,545	159,047	-	163,675
Share-based payments	-	-	(9,612)	-	(9,612)
Transfer relating to share-based payments	-	-	(1,431)	1,431	-
Transfer relating to convertible bonds	-	-	(2,022)	2,022	-
Transfer relating to the unwinding of discount on redeemed bonds	-	-	(8,086)	8,086	-
Unrealised currency translation differences	-	-	(8)	(5,538)	(5,546)
Retained profit for the year	-	-	-	101,432	101,432
As at 31 December 2010	27,534	72,622	149,205	763,856	1,013,217
					Company
	Called up share capital	Share premium account	Other reserves	Retained earnings	Total
	$000's	$000's	$000's	$000's	$000's
As at 1 January 2009	24,322	70,369	(58,520)	410,896	447,067
New shares issued	129	708	-	-	837
Share-based payments	-	-	50	-	50
Unrealised currency translation differences	-	-	23	55,219	55,242
Retained profit for the year	-	-	-	6,887	6,887
As at 1 January 2010	24,451	71,077	(58,447)	473,002	510,083
New shares issued	3,083	1,545	159,047	-	163,675
Unrealised currency translation differences	-	-	(8)	(21,686)	(21,694)
Retained loss for the year	-	-	-	(5,878)	(5,878)
As at 31 December 2010	27,534	72,622	100,592	445,438	646,186

Cash Flow Statements         

for the year to 31 December 2010         

					Group				Company
			2010		2009		2010		2009
	Notes		$000's		$000's		$000's		$000's
Net cash from (used in) operating activities	7		36,682		77,030		(7,191)		(6,435)
Investing activities
Purchase of intangible assets			(29,438)		(38,025)		-		-
Purchase of property, plant and equipment			(122,452)		(35,876)		(77)		(6)
Decrease (increase) in liquid investments 1			151,954		(151,954)		-		-
Investment in subsidiary undertakings			-		-		(25,732)		(8,467)
Dividends received from subsidiary undertakings			-		-		-		13,352
Proceeds on disposal of subsidiary	5		85,867		-		-		-
Net cash from (used in) from investing activities			85,931		(225,855)		(25,809)		4,879
Financing activities
Share-based payments			(10,477)		-		(10,477)		-
Repayment of borrowings			(165,949)		-		-		-
Proceeds on issue of ordinary share capital			163,674		837		163,674		837
Net cash (used in) from financing activities			(12,752)		837		153,197		837
Net increase (decrease) in cash and cash equivalents			109,861		(147,988)		120,197		(719)
Cash and cash equivalents at beginning of year			155,619		303,433		240		1,143
Effect of foreign exchange rate changes			(5,042)		174		(6,075)		(184)
Cash and cash equivalents at end of year 1			260,438		155,619		114,362		240

¹ Liquid investments comprise short term liquid investments of between three to six months maturity while cash and cash equivalents comprise cash at bank and other short term highly liquid investments of less than three months maturity. The combined cash and cash equivalents and liquid investments balance at 31 December 2010 was $260.4 million (2009 - $307.6 million).

Notes to the consolidated financial information

1          General information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 2009, but is derived from those accounts. A copy of the statutory accounts for 2009 has been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report  and did not contain statements under section 498(2) or (3) of the Companies Act 2006. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS.

The financial statements are presented in US dollars which is the functional currency of each of the Company's subsidiary undertakings. The Directors do not recommend the payment of a dividend.

2          Basis of preparation

The financial information has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) and with IFRSs adopted for use in the European Union. The financial statements have been prepared under the historical cost basis, except for the valuation of hydrocarbon inventory and the revaluation of certain financial instruments.

The Group has a strong financial position and should be able to satisfy its debt obligations and continue in operational existence for the foreseeable future. Consequently, the Directors believe that the Group is well placed to manage its financial and operating risks successfully and have prepared the financial information on a going concern basis.

3          Segment information

The Group has one principal business activity being oil and gas exploration and production.  The Group's operations are located in South East Asia and Africa (the Group's operating segments) and form the basis on which the Group reports its segment information.   There are no inter-segment sales. 

								2010
			Continuing operations			Discontinued operations 2
	SE Asia	Africa 3	Unallocated	Total				Group
	$000's	$000's	$000's	$000's		$000's		$000's
Oil and gas sales	48,390	-	-	48,390		64,660		113,050
Profit (loss) before tax 1	35,487	-	(4,636)	30,851		117,603		148,454
Tax charge (see Note 4)	18,544	-	4	18,548		28,474		47,022
Depletion and depreciation	5,897	-	149	6,046		3,732		9,778
								2009
			Continuing operations			Discontinued operations 2
	SE Asia	Africa 3	Unallocated	Total				Group
	$000's	$000's	$000's	$000's		$000's		$000's
Oil and gas sales	69,339	-	-	69,339		61,674		131,013
Profit (loss) before tax 1	58,314	-	(3,586)	54,728		38,766		93,494
Tax charge	19,821	-	94	19,915		22,461		42,376
Depletion and depreciation	11,267	-	152	11,419		4,707		16,126

¹ Unallocated amounts included in profit before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains and losses and finance costs.

² In September 2010, the Group completed the sale of its Thailand interest which was included in the SE Asia segment and is classified as a discontinued operation.  Profit before tax includes the profit on disposal of $80.1 million (see Note 5).

³ Costs associated with the Africa segment are capitalised in accordance with the Group's accounting policy.

The accounting policies of the reportable segments are the same as the Group's accounting policies.

Included in revenues arising from South East Asia (continuing and discontinued operations) are revenues of $54.4 million, $34.2 million and $12.5 million (2009 - South East Asia $61.7 million, $40.1 million and $19.2 million) which arose from the Group's largest individual customers.

Geographical information

Group revenue and non-current assets (excluding the financial asset) by geographical location are separately detailed below where they exceed 10% of total revenue or non-current assets, respectively, in any particular year:

Revenue

All of the Group's revenue is derived from foreign countries.  The Group's revenue by geographical location is determined by reference to the final destination of oil or gas sold.

							2010		2009
							$000's		$000's
Vietnam							48,389		22,443
Thailand							35,922		-
South Korea							19,560		-
United States of America							-		44,010
Australia							-		25,834
Other							9,179		38,726
							113,050		131,013
Non-current assets
							2010		2009
							$000's		$000's
United Kingdom							116		162
Vietnam							692,760		551,764
Other - Africa							144,359		124,271
							837,235		676,197

4          Tax

	Continuing operations			Discontinued operations					Group
	2010	2009		2010	2009		2010		2009
	$000's	$000's		$000's	$000's		$000's		$000's
Current tax	10,531	6,960		25,622	14,563		36,153		21,523
Deferred tax	8,017	12,955		2,852	7,898		10,869		20,853
	18,548	19,915		28,474	22,461		47,022		42,376

The Group's corporation tax is calculated at 50% (2009 - 50%) of the estimated assessable profit for the year in both Vietnam and Thailand. During 2010 and 2009 both current and deferred taxation have arisen in overseas jurisdictions only. 

The charge for the year can be reconciled to the profit per the income statement as follows:   

					2010		2009
					$000's		$000's
Profit before tax on continuing operations					30,851		54,728
Profit before tax on discontinued operations					117,603		38,766
Profit before tax					148,454		93,494
Profit before tax at 50% (2009 - 50%)					74,227		46,747
Effects of:
Non-taxable income and non-deductible expenses					(183)		(6,917)
Tax losses not recognised					2,939		3,233
Non-taxable profit on disposal					(40,058)		-
Taxes not related to profit before tax					7,979		-
Adjustments to tax charge in respect of previous years					2,118		(687)
Tax charge for the year					47,022		42,376

In 2009 the above reconciliation was based on the UK corporation tax rate of 28% however since the prevailing tax rate in the jurisdictions in which the Group produces oil and gas is 50% a more meaningful reconciliation using 50% as the tax rate has been prepared.  The 2009 figures have been restated accordingly.  The tax charge in future periods may also be affected by the factors in the reconciliation.

5          Discontinued operations

In July 2010, SOCO announced that it had entered into a conditional sale and purchase agreement, with an effective date of 1 January 2010, for the sale of its wholly owned subsidiary SOCO Thailand LLC (SOCO Thailand) to Salamander Energy plc for an initial value of $105.0 million (subject to certain financial adjustments including adjustments in respect of cash flows arising from the effective date), plus contingent cash consideration of $1 million (the Disposal). SOCO Thailand was the 99.9993% shareholder of SOCO Exploration (Thailand) Co Limited, the entity that held the Group's interest in the Bualuang Field, offshore of Thailand and which was a component of the Group's South East Asia segment (see Note 3).  The Disposal completed in September 2010. 

The results of the Group's discontinued Thailand interest are shown on the consolidated income statement and in Note 3.  Net operating cash flows from discontinued operations are shown in Note 7.  During the period to the date of completion of the Disposal cash used in investing activities was $11.2 million and cash from financing activities was $2.3 million.  Immediately prior to the completion of the Disposal the Group's share of net assets associated with the Thailand interest was $28.5 million comprising property, plant and equipment of $28.5 million, current assets of $41.0 million (including amounts owed by Group undertakings of $6.4 million), current liabilities of $29.2 million and long term liabilities of $11.8 million.

Upon completion the Group recognised a gain, excluding contingent consideration, of $80.1 million and cash inflow of $85.9 million reflecting the $105.0 million cash consideration less the Group's share of cash held by the Thailand interest of $16.3 million, transaction costs of $1.8 million and financial adjustments of $1.0 million.

6          Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

		2010		2009
		$000's		$000's
Earnings from continuing operations		12,303		34,813
Effect of dilutive potential ordinary shares: Interest on convertible bonds		68		943
Earnings for the purposes of diluted earnings per share on continuing operations		12,371		35,756
Earnings from discontinued operations		89,129		16,305
Earnings for the purposes of diluted earnings per share on continuing and discontinued operations		101,500		52,061

		Number of shares (000's)
		2010		2009
Weighted average number of ordinary shares for the purpose of basic earnings per share		328,459		293,835
Effect of dilutive potential ordinary shares:
Share options and warrants		8,172		10,675
Ordinary shares of the Company held by the Group		5,874		7,135
Convertible bonds		14,560		24,952
Weighted average number of ordinary shares for the purpose of diluted earnings per share		357,065		336,597

In June 2010, the Company subdivided its share capital on a four for one share basis.  Accordingly the number of ordinary shares used in 2009 for the purposes of the earnings per share calculation has been adjusted.

7          Reconciliation of operating profit to operating cash flows

		Group				Company
	2010	2009		2010		2009
	$000's	$000's		$000's		$000's
Operating profit (loss) from continuing operations	29,137	51,640		(6,608)		(6,462)
Operating profit from discontinued operations	36,473	38,811		-		-
	65,610	90,451		(6,608)		(6,462)
Share-based payments	865	875		865		875
Depletion and depreciation	9,778	16,126		119		112
Operating cash flows before movements in working capital	76,253	107,452		(5,624)		(5,475)
Increase in inventories	(873)	(19,922)		-		-
(Increase) decrease in receivables	(11,193)	14,032		76		(218)
Increase (decrease) in payables	5,412	(2,919)		(2,322)		(740)
Cash generated by (used in) operations	69,599	98,643		(7,870)		(6,433)
Interest received	1,364	3,577		688		1
Interest paid	(7,580)	(11,278)		(9)		(3)
Income taxes paid	(26,701)	(13,912)		-		-
Net cash from (used in) operating activities	36,682	77,030		(7,191)		(6,435)
Cash generated from operating activities comprises:
Continuing operating activities	12,419	46,478		(7,191)		(6,435)
Discontinued operating activities	24,263	30,552		-		-
	36,682	77,030		(7,191)		(6,435)

Cash and cash equivalents (which are presented as a single class of asset on the balance sheet) comprise cash at bank and other short term highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of change in value.

8      Preliminary results announced

Copies of the announcement will be available from the Company's head office, St James's House, 23 King Street, London, SW1Y 6QY. The Annual Report and Accounts will be posted to shareholders in due course.

 

END

 

 

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